An Iranian Economist Covering Economic Affairs in Iran and in the Middle East.

Wednesday, January 09, 2008

Budget and Snow

Severe cold and heavy snowfalls surprised Iranian government and people. Following an interruption of gas imports from Turkmenistan and the gas cuts in some cities amidst brutal cold weather Iranian government had to shut down schools, universities and government offices. In Tehran alone heavy snow resulted in heavy traffic and interruption of daily life. City’s 11’000 workers were struggling to clean the streets in time. Meanwhile Majlis informed the President that snow or no snow it expected the budget to be presented to Majlis in time. He went with a new budget and a new style.

Presenting Iran’s first budget after disbanding Budget and Management Organization, President Ahmadinejad took pride in simplifying the annual budget. Usually Iran’s annual budgets had been well prepared documents that identified sources of income, allocated them to different agencies and determined the priorities for spending. The present document does the allocation without determining the priorities. Prioritizing and deciding on spending have left to government agencies.

According to Etemad daily paper funding for all national agencies have been allocated through 39 organizations and only these organizations have received a funding article in the budget. Through this tactic President Ahmadinejad and his cabinet have gained the power to allocate funds to the subset organizations without seeking approval from Majlis. Majlis only approves the total budget for head agency without having any control over its distribution. The head of agencies can shift funds between different programs up to 30% of their initially allocated budget. For example Ministry of Higher Education can transfer up to 30% of university A budget to university B.

Government also will determine the financial protocols governing its working dynamics with National Iran Oil Company. Previously legislation body would have determined this. The significance of this decision multiplies when one notes the rising price of oil and the fact that oil revenue is the major source of revenue and national income in Iran. While some arguing that such a step will reduce Majlis’s ability to act as a control body, President is happy that “the new budget could be understood by any literate Iranian.” Thus its transparency is controlled by the people’s understanding of its mechanism.

President also has requested permission to withdraw 1.2 billion dollars from Iran’s currency saving fund. This fund established in order to save the increased oil revenue. Despite the fact that Iran’s estimated oil revenue reached 120 billion dollars in last two years; the fund has around 8 billion dollars. President expressed hopes that Majlis allows a withdrawal of 2 billion dollars. He argues that approaching Iranian New Year, Norouz, necessitates such a sum to ease out inflation and to lower prices in market, which usually increase during Iranian New Year shopping season in February and March.

Currently Inflation is a major concern in Iran. According to Iranian daily paper; Donya-e-Eghtesad (World of Economy), last December inflation rate passed 17% mark. It continues on an increasing trend. According to some sources money supply has doubled from 70 thousand billion Thomans to 140 thousand billion Tomans. Meanwhile government is moving to import more goods in order to control prices at a domestic level and to ensure population welfare. Already some economists argue that such policy is equivalent to subsidizing imports; an approach that would affect domestic producers and farmers most drastically. They warned that it might result in more dependence on oil and a sharp divergence from Iran’s 4th five years development plan. It seems government might have to wrestle with more than increasing oil revenues.

Meanwhile snow continues to fall and roads are in desperate need of being reopened and gas pressure is falling in some cities with a falling temperature. Average Iranian family is gearing up for a cold winter.